BALTIMORE (Stockpickr) -- Stocks took a tumble last week, as the S&P 500 fell 2.65% between Monday's open and Friday's close. All told, it was the worst single week for stocks going back to the summer of 2012.
That's more of a commentary on the last two years' price action than it is on the last week's price action, however. U.S. equities have gone straight up with very little volatility, which just makes every move lower all the more pronounced.
Zoom out to the bigger picture, and there's no reason to think that we're seeing anything other than another healthy correction. In fact, it even looks a lot less abrupt than the one that sent investors into panic mode back in January. There's still some room to the downside before bulls need to start worrying. Keep the context in mind: We're less than 5% away from all-time highs in the S&P 500 as I write this morning.
So to make the most of that market disconnect, we're turning to a new set of Rocket Stocks worth buying this week.
For the uninitiated, "Rocket Stocks" are our list of companies with short-term gain catalysts and longer-term growth potential. To find them, I run a weekly quantitative screen that seeks out stocks with a combination of analyst upgrades and positive earnings surprises to identify rising analyst expectations, a bullish signal for stocks in any market. After all, where analysts' expectations are increasing, institutional cash often follows. In the last 244 weeks, our weekly list of five plays has outperformed the S&P 500 by 80.51%.
Without further ado, here's a look at this week's Rocket Stocks.
First up is Apple (AAPL), a name that's been absent from our Rocket Stocks list for a while now. Even though tech names have been getting hit harder than most over the course of this correction, Apple's complete lack of momentum during 2013 has helped to spare it from getting sold off. So why buy Apple here?
Apple doesn't need much of an introduction. The firm's offerings include the iPhone, iPad tablet and Mac computer line. It's also the world's largest seller of digital music and media through its iTunes store. The biggest detractor for AAPL right now is the fact that the most recent of those flagship products was released four years ago. Investors are biting at the bit for a new "game changer," and CEO Tim Cook has indicated that Apple will be entering new segments in 2014. Let the speculation machine have at it.
But speculation over Apple's next "killer app" isn't the reason to buy this stock. The valuation is. Apple trades for a measly 9.3 times earnings ex-cash, a multiple that's more fitting for a utility stock than the biggest tech name on earth. At current share prices, the firm could pay for 30% of its outstanding shares with cash on hand.
Earnings next week could be a big catalyst for upside in Apple, but investors should expect the firm's WWDC event in early June to be a bigger one.
Against all odds, 2014 has been a solid year for shares of EOG Resources (EOG). While the S&P 500 index is down 1.8% since the calendar flipped over to January, EOG has actually managed to rally 17.5% over that same stretch. That's on top of a strong 2013 for investors in this oil and gas exploration and production firm. At the end of last year, EOG boasted proven reserves of 2.2 billion barrels of oil equivalent, 94% of which were located in the U.S.
EOG's positioning as a pure-play E&P stock is attractive. During a time of prolonged triple-digit oil prices and tightening refining margins, EOG has been able to avoid the mess by not owning downstream assets in the first place. The result is net profit margins that consistently hit the mid teens. Recent volatility in natural gas has been a boon to EOG's profitability -- approximately 45% of the firm's production is made up of natgas.
EOG is an expert in unconventional drilling situations, which means that the firm is able to unlock profits that would typically go to specialist oil field servicers -- or be left in the ground. As a result, the firm can buy up cheap projects that are no longer profitable for rivals, and wring cash out of them.
With rising analyst sentiment in shares this week, we're betting on this Rocket Stock.
This year hasn't been quite as breakneck for shares of semiconductor giant Texas Instruments (TXN), but this $49 billion analog chipmaker has at least managed to keep its price performance above where it ended 2013. That's more than most companies can say right now.
Even though Texas Instruments is best known to millions of school kids as a calculator maker, consumer calculators only contribute around 5% of sales. The other 95% of revenues are earned in the semiconductor business; TXN is the world's largest maker of analog chips. Analog chips are used to process analog signals (like the human voice) and turn them into digital ones. As a result, TXN has a big role supplying components to the high-demand mobile phone market.
The acquisition of National Semiconductor effectively doubled down TXN's bet on the analog chip business. It also gave the firm huge manufacturing capacity that few rivals can match. The semiconductor business is incredibly cyclical, and the long-term rut that chipmakers have been in for the last several years is finally giving way to increased demand and profitability. That makes Texas Instruments a good low-volatility way to play the trend.
Health care giant Becton Dickinson (BDX) tips the scales as the world's largest medical supply company. The firm manufactures surgical instruments such as needles, syringes and scalpels and distributes them to facilities all over the world. That huge scale gives Becton some big competitive advantages as demographic shifts and policy changes ramp up demand for the firm's medical instruments.
Becton's offerings may be a lot of things, but they're not particularly exciting -- and neither are the margins. To change that, the firm has been at work for years to grow its complex high-margin medical equipment (like oncology and pathology diagnostic devices) into a bigger piece of the revenue pie. Together, those two parts of BDX's work very well together: the instruments business pays the bills and provides downside protection from a bumpy economy, while high-tech devices hold the promise for revenue growth and margin expansion.
Financially, Becton is in solid shape. The firm carries just $1.4 billion in net debt on its balance sheet, a very small amount of leverage for a firm of BDX's scale. With more than $2.5 billion in cash on hand, the firm has more than enough wherewithal to handle any economic hiccups along the way. It also has a long history of paying a solid dividend payout; currently that adds up to a 2% dividend yield.
Johnson & Johnson
Last up is Johnson & Johnson (JNJ), a bigger health care name with an even bigger reach. JNJ is the world's biggest and broadest health care company, with more than $71 billion in annual revenues spread out across pharmaceuticals, medical devices, and consumer products. That diversification makes JNJ the total package when it comes to healthcare sector exposure.
On the consumer side, Johnson & Johnson owns a valuable portfolio of brands that includes names like Band-Aid, Tylenol, Neutrogena and Acuvue. But it's the non-consumer side of the business -- pharmaceuticals and medical devices -- that provide the majority of JNJ's sales. The firm made a big bet on the medical device space with the $20.2 billion acquisition of Synthes in 2012, a move that should expand the high-margin devices business as a share of JNJ's total revenue in the next few years.
JNJ's businesses throw off substantial cash. Even after deploying considerable cash for the Synthes acquisition, the firm currently carries a net cash position of $11 billion. Johnson & Johnson's 2.7% dividend yield makes it a particularly attractive name in this environment, where rate-sensitive stocks are benefitting on fears of a prolonged market drop. So, with rising analyst sentiment in JNJ this week, we're betting on shares.
To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.